Queensland Treasurer Cameron Dick has handed down the long-awaited 2020-21 state budget and it contains bigger deficits and much higher debt over the forward estimates than I expected, with nearly $89 billion of general government debt and around
$130 billion of total state debt projected by 30 June 2024. The Government is keeping spending at a higher level than the pre-COVID trajectory and is making no attempt to return the operating budget to balance over the forward estimates, so in 2023-24 the Queensland Government will still be borrowing to pay wages or keep the lights on, as they say. The Treasurer argues this is necessary given the economy will still be scarred by the COVID-recession for several years, which may well be the case. Let’s wait and see.
A test for the Government will be whether it makes a genuine commitment to return the operating balance to surplus if the economy turns out to be stronger than expected. Given the Government is set to abandon, or “nuance” using its language (p. 101), the fiscal principle around keeping public service growth at the same rate as population growth, I don’t have much hope the Government would start aiming for an operating surplus if the recovery turns out stronger than expected.
There are quite a few good summaries of the state budget out there, including on the Brisbane Times website. I found Lydia Lynch and Felicity Caldwell’s article on The winners and losers in the Queensland budget very useful, and it was good they observed the losers included:
Future generations: Total debt will hit almost $130 billion in three years, leaving each Queenslander to shoulder about $25,000 worth of public debt.
It’s not just future generations, though. Current generations will also be paying to service the debt. The general government interest bill will increase from $1.5 billion in 2019-20 to nearly $2 billion in 2023-24. That’s an additional drain on the budget. In the long-term, it means higher taxes and charges than otherwise or less money spent on health and education, for example. The Government and Queensland taxpayers are lucky that state governments can currently borrow at historically low rates, at around 1¼ percent per annum for ten years. While borrowing rates are expected to remain low for a few years at least, it’s possible the Government will have to refinance its rapidly escalating debt at higher rates in the future, and that $2 billion interest bill will be much higher, creating big budgetary challenges for the state government in the future.
Finally, the Government can legitimately be criticised as having been less than forthcoming in the lead up to the 31 October election. Although it did admit there would be new borrowings to cover future deficits, it didn’t disclose that the total additional borrowings, over those revealed in the September update, would be $28 billion for the general government sector – i.e. seven times the $4 billion it admitted it would have to borrow to finance its election commitments. I’m sure it had its own internal projections from the Treasury and arguably it should have disclosed them at the time.